A conflict of laws can present a difficult challenge for a court presiding over a given case. In formulating a ruling, the court can set a precedent for how future courts handle decisions of the same type. In the case of accounts receivable in bankruptcy, a conflict of laws can change who first receives payment for debts owed. Where international laws are in conflict, a court's ruling could strip diplomatic immunity from a sovereign nation's accounts.

Conflict of Laws Circumstances

A conflict of laws occurs when a difference arises between two or more separate legal jurisdictions with claim to a particular legal issue. The outcome of the legal case in question depends on which jurisdiction's laws apply to the matter. A conflict of laws can occur among states, the federal government and international governments. Characterization or classification is the process by which the court determines which legal jurisdiction to apply to a given case, according to Cornell University Law School. The court generally has two choices: apply the laws of the forum if the case hinges on a procedural matter, or apply the laws with jurisdiction where the disputed event actually took place.

Accounts Receivable in Bankruptcy

Accounts receivable refers to anticipated revenue a business or independent contractor is waiting to receive on transactions, including the sale of goods or services. A conflict of laws can occur if the business or contractor files for bankruptcy with accounts receivable still outstanding. The question becomes whether the Consumer Credit Protection Act at the federal level subordinates state bankruptcy laws in allowing a trustee to claim accounts receivable to pay bankruptcy creditors. In the case of an independent contractor, the federal law takes precedence because the court considers accounts receivable as wages, according to Massachusetts bankruptcy attorney L. Jed Berliner. For a business in bankruptcy, accounts receivable are assets, which allows a trustee to pursue the accounts to pay back creditors.

Employee Pay Rights

Employees of a bankrupt business also have rights to pursue the company for back wages. This requires employees to file a formal petition with the bankruptcy court and appear as creditors on the company's bankruptcy information. Conflict of laws can occur here when employees live in different states than the company filing for bankruptcy. The court decides which state law takes precedence in allowing employees to pursue accounts receivable for payment of unpaid wages. State laws may elect to pay employees before satisfying other creditors, or may subordinate employee wages to federal debt obligations, including back taxes.

International Law Concerns

International law can also cause a conflict of laws pertaining to accounts receivable. For example, a court can rule that normally protected diplomatic funds in a foreign government's bank accounts are accessible to pay back debts if the debts are commercial in nature. This was the case in 1983, when a German court ruled concerning funds belonging to the Iranian government, held for accounts receivable in German banks. The court argued that because the funds in those accounts were the result of commercial oil sales, they received no diplomatic immunity from seizure under the law, according to "Conflict of Laws and International Finance" written by Philip R Wood.

About the Author

Jonathan Lister has been a writer and content marketer since 2003. His latest book publication, "Bullet, a Demos City Novel" is forthcoming from J Taylor Publishing in June 2014. He holds a Bachelor of Arts in English from Shippensburg University and a Master of Fine Arts in writing and poetics from Naropa University.